Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 71 PDF

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Document (1) 1. Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713, [1978] 1 All ER 713 Client/Matter: -NoneSearch Terms: [1978]1 ALL ER 713 Search Type: Natural Language Narrowed by: Content Type UK Cases

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Western Excavating (ECC) Ltd v Sharp Overview | [1978] QB 761, ICR 221, 121 Sol Jo 814

| [1978] 1 All ER 713,

| [1978] 2 WLR 344,

| [1978] IRLR 27,

| [1978]

Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713 COURT OF APPEAL, CIVIL DIVISION LORD DENNING MR, LAWTON AND EVELEIGH LJJ 1, 2, 14 NOVEMBER 1977 Unfair dismissal — Constructive dismissal — Test to be applied in determining whether employee constructively dismissed — Breach of contract entitling employee to treat contract as terminated — Reasonableness of employer's conduct not appropriate test — Proper test to ask whether employer's conduct such as in law to entitle employee to treat himself as discharged from contractual obligations — Trade Union and Labour Relations Act 1974, Sch 1, para 5(2)(c). It was a term of S's contract of employment that if he worked extra time he could have time off in lieu. On 26 February 1976 he asked his employers if he could have the afternoon off so that he could play cards for a team. He was told that he could not have time off that day because there was a lot of work to be done. He nonetheless took the afternoon off. The following morning he was dismissed, with two weeks' notice, for failing to carry out a reasonable order. He appealed to a panel set up by his employers under their disciplinary procedure. The panel decided that the dismissal should be withdrawn but that he should be suspended for five working days without pay. Their decision left him in financial difficultes. He had no savings and without his week's take home pay of £42·4340 he was unable to meet his household expenses (which included those of the woman with whom he was living and their two children). The sum of £6.45 which he obtained from social security was not enough for that purpose. He therefore asked his employer for an advance on his accrued holiday pay, which amounted to £117·4317 net. They informed him that it was against their policy to pay holiday pay unless the holiday was actually taken. He then asked for a loan of £40. The employers' welfare officer told him that they could not make him a loan to that extent but suggested that S should see him again to discuss the details. S thereupon informed his employers that he did not want to leave their employment but that circumstances forced him to resign and ask for his accrued holiday pay. He was given the £117·4317 and left. He immediately made a complaint to an industrial tribunal, claiming that the termination of his employment amounted to 'constructive dismissal' by the employers under para 5(2)(c)a of Sch 1 to the Trade Union and Labour Relations Act 1974, and that the dismissal was unfair. The tribunal held that the circumstances had been such that S was 'entitled to terminate [his] contract without notice by reason of the employer's conduct', within para 5(2)(c), because the employers had not, in respect of his request for his accrued holiday pay, acted reasonably in their treatment of him as they should 'have leant over backwards to ensure that the same result as the discredited dismissal was not … achieved'. He was a Paragraph 5(2), so far as material, provides: '… an employee shall be treated for the purposes of this Act as dismissed by his employer if, but only if … (c) the employee terminates that contract, with or without notice in, circumstances such that he is entitled to terminate without notice by reason of the employer's conduct.'

[*714]

[*714] awarded £658 compensation for unfair dismissal. The Employment Appeal Tribunal dismissed an appeal by the employers who thereupon appealed to the Court of Appeal. KATRINA ELLEN KATRINA ELLEN

Page 2 of 7 Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713 Held – In determining whether S had been 'dismissed' the industrial tribunal had applied the wrong test. The use of the words 'entitled' and 'without notice' in para 5(2)(c) showed that the test of reasonableness, which by virtue of para 6(8)b of Sch 1 to the 1974 Act was applicable to the determination of the fairness of the dismissal, could not be applied in the determination of the question whether there had been a dismissal. 'Entitled' in para 5(2)(c) meant 'entitled according to the law of contract' and accordingly an employee had the right under para 5(2)(c) to treat himself as discharged from his contractual obligations only where his employer was guilty of conduct which went to the root of the contract of employment or which showed that the employer no longer intended to be bound by one or more of the essential terms of the contract. If the industrial tribunal had applied the correct test they could not have treated S as having been dismissed, within para 5(2)(c), because the employers had neither repudiated his contract of employment nor been in breach of it. Accordingly the appeal would be allowed (see p 717 c to e, p 718 d and g to j, p 719 b and e to j and p 720 h, post). b

Paragraph 6(8), so far as material, is set out at p 717 h post

Marriott v Oxford and District Co-operative Society Ltd[1969] 3 All ER 1126 explained. NotesFor the circumstances in which an employee is treated as dismissed, see 16 Halsbury's Laws (4th Edn) para 616. For the Trade Union and Labour Relations Act 1974, Sch 1, paras 5, 6, see 44 Halsbury's Statutes (3rd Edn) 1788, 1789. Cases referred to in judgmentsMarriott v Oxford and District Co-operative Society Ltd[1969] 3 All ER 1126, [1970] 1 QB 186, [1969] 3 WLR 984, 7 KIR 219, [1969] ITR 377, CA; rvsg[1969] 1 All ER 471, [1969] 1 WLR 254, 6 KIR 479, [1969] ITR 125, Digest (Cont Vol) 689, 816Adc. Scott v Aveling Barford Ltd[1978] 1 WLR 208, EAT. Turner v London Transport Executive[1977] ICR 952, [1977] IRLR 441, CA. Wetherall (Bond St W1) Ltd v Lynn[1978] 1 WLR 200, [1977] IRLR 333, EAT. Cases also citedBreach v Epsylon Industries Ltd[1976] ICR 316, EAT. Burroughs Machines Ltd v Timmoney[1977] IRLR 404, CS. Chapman v Goonvean & Rostowrack China Clay Co Ltd[1973] 2 All ER 1063, [1973] 1 WLR 678, CA. Charles v Spiralynx (1933) Ltd [1970] ITR 82, CA. GKN (Cwmbran) Ltd v Lloyd[1972] ICR 214, NIRC. Gilbert v Goldstone Ltd[1977] 1 All ER 423, EAT. Logabax Ltd v Titherley[1977] ICR 369, EAT. Wimpey (George) & Co Ltd v Cooper[1977] IRLR 205, EAT. AppealThis was an appeal by Western Excavating (ECC) Ltd ('the company') against an order of the Employment Appeal Tribunal (Kilner Brown J, Mr S C Morley JP and Mr J E C Milligan), dated 15 November 1976, dismissing an appeal by the company against the decision of an industrial tribunal (chairman Mark Nesbitt Esq) sitting at St Austell dated 24 May 1976, awarding the respondent, Colin John Sharp, £658 compensation for unfair dismissal. The facts are set out in the judgment of Lord Denning MR.

Andrew Smith for the company. Francis Gilbert for Mr Sharp. [*715] Cur adv vult 14 November 1977. The following judgments were delivered. LORD DENNING MR.

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Page 3 of 7 Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713 Mr Sharp was only employed by the China-Clay Co for 20 months. He left of his own accord. Yet he has been awarded £658 as compensation for unfair dismissal. There seems something wrong about that award. What is it? To fill in the details, he started work with the company on 9 July 1974. One of the terms was that, if he worked extra time, he could have time off in lieu. One day in Feburary 1976 he wanted to play a card game for a team. He asked the foreman for three hours off. The foreman said that he could not have it that afternoon as there was a lot of work to be done. But Mr Sharp took it off and played his game of cards. Next morning, Friday, 27 February 1976, the foreman dismissed him, giving him two weeks' notice for failing to carry out a reasonable order. He appealed to a panel set up by the company under its disciplinary procedure. On 5 March 1976 the panel allowed his appeal, saying: 'Having considered all the evidence presented to us, we are of the unanimous decision that the Dismissal be withdrawn, as there was room for confusion the way the situation was left, but having regard to the seriousness of what has happened, we substitute the Dismissal with five working days suspension without pay.'

Thus he lost five days' pay. He does not dispute the justice of the panel's decision. But it left him in financial difficulties. He was living with a woman who was, in modern terminology, his common law wife' and their two children. His take-home pay was £42·4340 a week. He had no savings, but he had holiday pay accrued to him of £117·4317 net. As a result of the five days' loss of pay, he had no money to pay his household expenses. He went to the social security and was given £6·4345. But that was not enough to carry on. So he went to his employers, the company. He asked for an advance on his accrued holiday pay. He was told, quite correctly, that it was against company policy to pay holiday pay unless the holiday was itself actually taken. He then asked for a loan. He said he wanted £40. The welfare officer told him that the company could not make him a loan to that extent. The welfare officer suggested that Mr Sharp should see him again to discuss the details. That did not satisfy Mr Sharp. He said: 'If the company cannot help me, I must sort it out myself. I shall have to obtain my holiday pay.' That is just what he did. He went to see the workshop manager, and said: 'I don't want to leave, but circumstances force me to do so. I am leaving and want my holiday pay now.' So on 11 March 1976 he picked up his holiday pay of £117·4317 and left. He went straight off to the industrial tribunal and claimed compensation for unfair dismissal. The industrial tribunal were divided in opinion. Two of them thought Mr Sharp should be compensated. He should be awarded £658. They said that the company 'ought to have leant over backwards to help him'; and that the company's conduct 'justified Mr Sharp in terminating his employment in order to obtain his accrued holiday pay and so meet his commitments'. The third member disagreed. He thought that Mr Sharp ought to have talked to the welfare officer again. He held that Mr Sharp's decision to resign was not caused or originated by any misconduct on the part of the company, but was solely his own personal decision. There had, therefore, been no dismissal whether constructive or otherwise. The company appealed to the Employment Appeal Tribunal. They said significantly: '… if each one of us individually had been sitting on this industrial tribunal, we would have been minded to take the same view as that of the minority member.'

[*716] But they dismissed the company's appeal because they said they were— 'forced to the conclusion that it is impossible to say that this industrial tribunal went so badly wrong in law, or reached such a conclusion that no reasonable tribunal could have come to it.'

So Mr Sharp (who left work of his own accord, because he was not granted a loan as to the full amount he asked) was awarded £658 compensation. It does seem strange. Especially as the industrial tribunal said: '… in finding against [the company] we imply no criticism of their general treatment of Mr Sharp, or of their personnel administration and procedures as a whole. On the contrary, we consider all these aspects to have been quite excellent, and [the company] to have been good, responsible and careful employers … We regard the events of 9th and 10th March as something exceptional.'

The lawUntil recently, an ordinary servant had no security of tenure. He could be dismissed on a month's notice or a month's salary in lieu of notice, although he might have served his master faithfully for years. That was altered by KATRINA ELLEN KATRINA ELLEN

Page 4 of 7 Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713 the provisions of the Industrial Relations Act 1971, which have now been re-enacted in Sch 1 to the Trade Union and Labour Relations Act 1974. Paragraph 4 says: '… every employee shall have the right not to be unfairly dismissed by his employer'. If he is unfairly dismissed, he can complain to an industrial tribunal. The tribunal may recommend that he be reinstated in his job, if that is practicable. Alternatively, it may award him compensation in such amount as is fair and equitable. It may be as much as £5,200. So, whereas at common law an employer could dismiss a man on a month's notice or a month's wages in lieu, nowadays an employer cannot dismiss a man even on good notice, except at the risk of having to pay him a large sum should the industrial tribunal find that the dismissal was unfair. These provisions are not confined to cases where the employer himself dismisses the man. They also apply to cases where the man leaves of his own choice, if he can show that it was due to the way the employer treated him. In other words, compensation is payable, not only for actual dismissal, but also for 'constructive dismissal'. We have here to consider the doctrine of 'constructive dismissal'. The statutory provisionsThe circumstances in which an employee qualifies as being 'dismissed' by his employer were first set out in s 3 of the Redundancy Payments Act 1965 in these words: an employee shall— 'be taken to be dismissed by his employer if, but only if,—(a) the contract under which he is employed by the employer is terminated by the employer, whether it is so terminated by notice or without notice, or (b) where under that contract he is employed for a fixed term, that term expires without being renewed under the same contract, or (c) the employee terminates that contract without notice in circumstances … such that he is entitled to terminate it by reason of the employer's conduct.'

A similar provision was contained in s 23 of the Industrial Relations Act 1971, but with the significant omission of para (c). In the Trade Union and Labour Relations Act 1974 the original provision was re-enacted in Sch 1, para 5, but with para (c) restored. But on being restored there was an important amendment. The amended para (c) reads: '(c) the employee terminates that contract, with or without notice, in circumstances such that he is entitled to terminate it without notice by reason of the employer's conduct.' Those words 'with or' were inserted because it was realised that para (c) as enacted in 1965 left a gap. [*717] A man who was considerate enough to give notice was worse off than one who left without notice. Paragraph (c) has given rise to a vast body of case law as to what comes within it. It is spoken of as 'constructive dismissal'. It has given rise to a problem on which there has been a diversity of views among chairmen of industrial tribunals and among the judges of the Employment Appeal Tribunal. On 28 July 1977 the Employment Appeal Tribunal attempted to settle these differences in Wetherall (Bond St W1) Ltd v Lynn; but they were unsettled again by the discovery of some obiter dicta in this court in Turner v London Transport Executive. This led the Employment Appeal Tribunal on 4 October 1977 to think that they ought to follow those obiter dicta and to give guidance accordingly. It is to be found in their decision in Scott v Aveling Barford Ltd. But this guidance was expressed to be given as an interim measure pending an authoritative statement of the law by the Court of Appeal or the Court of Session. It is with diffidence that we approach the task. The rival tests are these. The contract testOn the one hand, it is said that the words of Sch 1, para 5(2)(c), to the 1974 Act express a legal concept which is already well settled in the books on contract under the rubric 'Discharge by breach'. If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer's conduct. He is constructively dismissed. The employee is entitled in those circumstances to leave at the instant without giving any notice at all or, alternatively, he may give notice and say he is leaving at the end of the notice. But the conduct must in either case be sufficiently serious to entitle him to leave at once. Moreover, he must make up his mind soon after the conduct of which he complains; for, if he continues for any length of time without leaving, he will lose his right to treat himself as discharged. He will be regarded as having elected to affirm the contract.

KATRINA ELLEN KATRINA ELLEN

Page 5 of 7 Western Excavating (ECC) Ltd v Sharp [1978] 1 All ER 713 The unreasonableness testOn the other hand, it is said that the words of Sch 1, para 5(2)(c) do not express any settled legal concept. They introduce a new concept into contracts of employment. It is that the employer must act reasonably in his treatment of his employees. If he conducts himself or his affairs so unreasonably that the employee cannot fairly be expected to put up with it any longer, the employee is justified in leaving. He can go, with or without giving notice, and claim compensation for unfair dismissal. It would seem that this new concept of 'unreasonable conduct' is very similar to the concept of 'unfairness' as described in Sch 1, para 6(8), which says: '… the determination of the question whether the dismissal was fair or unfair, having regard to the reason shown by the employer, shall depend on whether the employer can satisfy the tribunal that in the circumstances (having regard to equity and the substantial merits of the case) he acted reasonably in treating it as a sufficient reason for dismissing the employee.'

Those who adopt the 'unreasonableness test' for dismissal say quite frankly that it is the same as the 'unreasonableness' test for fairness. That was the view taken by Megaw LJ in Turner v London Transport Executive ([1977] ICR 952 at 964). He said: [*718] 'So far as (c) is concerned … the wording of this sub-paragraph is not a wording which involves, or implies, the same concept as the common law concept of fundamental breach of a contract resulting in its unilateral repudiation and acceptance of that unilateral repudiation by the innocent party. The employer's “conduct” here is employer's conduct to be adjudged by the industrial tribunal by the criteria which they regard as right and fair in respect of a case in which the issue is whether or not there has been “unfair” dismissal.'

Previous casesThe only previous case in this court on the words is Marriott v Oxford and District Co-operative Society Ltd. It was under the Redundancy Payments Act 1965. Subparagraph (c) did not apply because in that Act it only applied where the employee terminated without notice; whereas Marriott had terminated it with notice. So this court put it on sub-para (a). But since the amendment to sub-para (c), it would have been more properly brought under sub-para (c). It was not really an (a) case; but we had to stretch it a bit. It was not the employer who terminated the employment. It was the employee; and he was entitled to do so by reason of the employer's conduct. All the other cases are in the Employment Appeal Tribunal. We have studied them all, but I hope I will be excused from going through them. The resultIn my opinion the contract test is the right test. My reasons are as follows. (i) The Act itself draws a distinction between 'dismissal' in para 5(2)(c) and 'unfairness' in para 6(8). If Parliament intended that same test to apply, it would have said so. (ii)...